K12 Inc. (NYSE: LRN) Stock a ‘New Normal’ Pullback Buy

Online education platform company K12 Inc. NYSE: LRN shares saw a massive spike in recent weeks as the resurgence of COVID-19 is causing schools to integrate part to full online classes for the fall 2020 semester. The company offers remote learning options for the nation’s school systems as more and more regions are opting for online school starts in the fall. Shares recovered from February pandemic lows with the S&P 500 index NYSEARCA: SPY to proceed to hit new all-time highs as school districts decide on integrating online classes for fall 2020. The acceleration of enrollments should drive shares higher as more school systems commit to the platform. Nimble and very risk-tolerant investors and traders may consider taking light positions on opportunistic pullback entries as the online learning industry experienced multiple expansions.

Q3 FY 2020 Earnings Release

On April 27, 2020, K12 released its fiscal year Q3 2020 earnings for the quarter ending March 2020. The Company reported earnings of $0.22 per share beating consensus analyst estimates of $0.20 per share, by $0.02 per share. Revenues beat the $253.83 million estimates by coming in at $257.15 million up 1.5% year-over-year (YoY). The Company reaffirmed guidance for FY20 revenues of $1.033 to $1.040 billion, which surpassed the $1.03 billion consensus analyst estimates. Management noted on their conference call how traffic and engagements spiked sharply in April after isolation mandates were passed. These headwinds should only accelerate heading into the new school year as COVID-19 surges again throughout the U.S.

Migration to Online School Starts

K12 is the nation’s largest online education providers with over 6,000 state-certified teachers with plans to hire more than 1,300 educators for the upcoming school 2020-2021 academic school year. The addressable market is near 51 million public school students and 3.7 million teachers. The Company will be launching newly redesigned online school (OLS) for kindergarten through fifth grade with improved mobile-friendly platform enabling learning from anywhere. K12 is an unexpected pandemic benefactor and will continue to gain from the headwinds triggered by the spike in COVID-19 cases as school administrators have limited time to decide on how they will re-open the school year.

Citron Research Upgrade to $100

Noted short-seller Andrew Left has brought attention to this stock comparing it to the Teladoc Health NASDAQ: TDOC of remote learning. His influence on the shares can’t be overlooked as volume spiked tenfold on his upgrade to a $100 price target. Investors need to be aware of the cause for the acceleration of prices and gauge the nominal values as most of the research is based on future “what if” scenarios and potential contracts. While not every school district or university will opt to use the platform, only 5% of schools are capable of online education. K12 is an ecosystem and integrator of educational platforms, which make it a solid solution for many public and private schools. The upcoming earnings release is due out after the close on July 28, 2020 as investors await more clarity on the surge in traffic. Competing remote learning stocks include Chegg NASDAQ: CHGG , 2U, Inc. NASDAQ: TWOU ,Grand Canyon Education NASDAQ: LOPE and Bright Horizons Fam Solutions NASDAQ: BFAM . Traders and investors should watch LRN in conjunction with its peers.

LRN Price Trajectories

Using the rifle charts on the weekly time frames provides a broader view of the landscape for LRN stock. The weekly formed a market structure low (MSL) buy above $26.65 Fibonacci (fib) level. This triggered stairstep weekly stochastic mini pups through the 80-band stochastic thrusting it to multi-year highs. Keep in mind that LRN nor its peer stocks are momentum stocks, but they are trading like them for the time being. The perfect storm of headwinds stemming from COVID-19 resurgence is causing panicked legislators and school administrators to make fast decisions on how to move forward with the upcoming academic year. The point is to tread lightly and be patient for pullbacks and not to impulsively chase entries. Shares will likely spike heading into the earnings report and possibly trigger a sell the news reaction which can present opportunistic pullback entry levels at $42.18 fib, $39.58 fib/sticky 5s zone, $32.53 fib/sticky 2.50s zone, $27.78 fib and $26.85 weekly MSL/fib. Shares hit a recent hit at a double fib resistance at $50.49. This will be a key breakout level. Upside catalysts include major contracts with mainstream universities, the rollback of regional restarts/reenacting isolation mandates and major public-school systems. Downside catalysts include guidance cuts, COVID-19 vaccine approval, and regulatory intervention.